AUD/USD Forecast May 1-5

AUD/USD [1]posted losses for a second straight week, closing at 0.7485. This week’s key event is the RBA Rate Statement.Here is an outlook on the major market-movers and an updated technical analysis for AUD/USD.

It was a disappointing week in the US. GDP grew by an annualized rate of 0.7% in the first quarter[2], weaker than expected and the lowest in three years. As well, durable goods orders and consumer confidence missed expectations.

Updates:

AUD/USD daily graph with support and resistance lines on it. Click to enlarge:

  1. AIG Manufacturing Index: Sunday, 23:30. This minor indicator continues to show expansion, but dipped to 57.5 in March.
  2. MI Inflation Gauge: Monday, 1:00. This monthly indicator helps analysts predict CPI, which is released on a quarterly basis. The index posted a small gain of 0.1% in March.
  3. Commodity Prices: Monday, 6:30. Commodity prices have posted strong gains in Q1. In March, the indicator came in at 50.1%, down from 56.0% a month earlier.
  4. Chinese Caixin Manufacturing PMI: Tuesday, 1:45. This Chinese indicator continues to show slight expansion. In March, the index dipped to 51.2, short of the estimate of 51.8 points. Little change is expected in the August report.
  5. RBA Cash Rate: Tuesday, 4:30. The RBA will release its rate statement, with the RBA expected to hold rates at 1.50%. The rate has been pegged at this level since August 2016.
  6. AIG Services Index: Tuesday, 23:30. The indicator rebounded in March, with a reading of 51.7 points. This points to slight expansion in the services sector.
  7. HIA New Home Sales: Thursday, 1:00. This indicator provides a gauge of the level of activity in the housing sector. The indicator rebounded in February, with a slight gain of 0.2%.
  8. Trade Balance: Thursday, 1:30. Australia’s trade surplus jumped to AUD 3.57 billion in February, well above the forecast of AUD 1.75 billion. The estimate for the March report is AUD 3.33 billion.
  9. RBA Governor Philip Lowe Speech: Thursday, 3:10. Lowe will deliver remarks at an event in Brisbane. A speech which is more hawkish than expected is bullish for the Australian dollar.
  10. AIG Construction Index: Thursday, 23:30. The indicator dipped to 51.2 in March, pointing to slight expansion in the construction sector.
  11. RBA Monetary Policy Statement: Friday, 1:30. This quarterly report discusses the RBA’s view of economic conditions and inflation. Analysts will be looking for clues as to future monetary policy.

AUD/USD Technical Analysis

AUD/USD opened the week at 0.7556 and quickly climbed to a high of 0.7585. The pair then reversed directions and dropped to a low of 0.7439, breaking support at 0.7513 (discussed last week[3]). The pair closed the week at 0.7485.

We start with resistance at 0.7938. This line has held since May 2015.

0.7835 was the high point in April 2016.

0.7741 was a cap in February.

0.7605 has strengthened in resistance as AUD/USD lost ground last week.

0.7513 remains busy. It has switched to a resistance role.

0.7429 is an immediate support role.

0.7311 marked a low point in November.

0.7223 is the next support line.

0.7105 has held since March 2016. It is the final support level for now.

I am bearish on AUD/USD

The US economy has hit a bump, underscored by the weak Advance release report for Q1. Still, the Fed is likely to raise rates another two times in 2017, which is bullish for the US dollar.

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GBP/USD Forecast May 1-5

GBP/USD[1] continued to move higher last week, closing at 1.2944. This marked the highest weekly close since September 2016. This week’s key events are the PMI reportsHere is an outlook for the highlights of this week and an updated technical analysis for GBP/USD.  

The pound ignored a weak GDP report, as UK Preliminary GDP softened to 0.3%[2], shy of the estimate of 0.4%. In the US, GDP grew by an annualized rate of 0.7% in the first quarter[3], weaker than expected and the lowest in three years.

Updates:

GBP/USD graph with support and resistance lines on it. Click to enlarge:

  1. Manufacturing PMI: Tuesday, 8:30: This is the first of three PMIs this week, which are important gauges of the strength of the British economy. Manufacturing PMI numbers have softened in Q1, but continue to indicate expansion. The estimate for March stands at 54.0 points.
  2. BRC Shop Price Index: Tuesday, 23:01. This indicator measures consumer inflation in BRC shops. The index came in at -0.8% in March, its smallest decline since December 2013.
  3. Construction PMI: Wednesday, 8:30. The indicator dipped to 52.2 in March, within expectations. Little change is expected in the April report.
  4. Services PMI: Thursday, 8:30. Services PMI improved to 55.0 in March, above expectations. The forecast for April stands at 54.6 points.
  5. Net Lending to Individuals: Thursday, 8:30. Consumer credit levels are linked to consumer spending, a key component of economic growth. The indicator edged up to GBP 4.9 billion in March, matching the forecast. The markets are expecting a weaker reading in April, with an estimate of GBP 4.5 billion.

*All times are GMT

GBP/USD Technical Analysis

GBP/USD opened the week at 1.2823 and quickly dropped to a low of 1.2770, testing support at 1.2775. It was all uphill from there, as the pair climbed to a high of 1.2965 (discussed last week[4]). GBP/USD closed the week at 1.2944.

Technical lines from top to bottom

1.3347 has held in resistance since September 2016.

1.3247 is next.

1.3112 marked a low point in June 2016 as the pound crashed after the Brexit vote.

1.3020 is a weak resistance line.

1.2902 has switched to a support role.

1.2775 is the next support level.

1.2548 is the final support level for now.

I am bullish on GBP/USD.

The US economy has round into some turbulence, underscored by a weak GDP reading last week. Trump’s first 100 days have been rocky, so sentiment over the dollar could weaken.

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USD/CAD Forecast May 1-5

USD/CAD[1] posted a second straight week of sharp gains, climbing 170 points. The pair closed the week at 1.3659, its highest weekly since February 2016. This week’s key event is Employment Change. Here is an outlook on the major market- movers and an updated technical analysis for USD/CAD.
The Canadian dollar continued to slide last week. Weak data hurt the currency, as GDP came in at a flat 0.0% in March, its weakest reading in four months[2]. Core Retail Sales came in at -0.1% in March, compared to 1.7% a month earlier. In the US, Trump completes his first 100 days in office with a mixed dollar. US GDP grew by an annualized rate of 0.7% in the first quarter[3], weaker than expected and the lowest in three years.

USD/CAD daily graph with support and resistance lines on it. Click to enlarge:

 
  1. Manufacturing PMI: Monday, 13:30. The PMI has pushed to higher levels for 6 consecutive months. The index climbed to 55.5 points in March. Will the upward trend continue in April?
  2. Trade Balance: Thursday, 12:30. Canada’s posted a trade deficit of C$-1.0 billion in February, following three straight surpluses. The markets are expecting a small surplus of C$0.3 billion in the March report.
  3. BoC Governor Stephen Poloz Speech: Thursday, 20:25. Poloz will speak at an event in Mexico City. The markets will be looking for clues regarding future monetary policy.
  4. Employment Change: Friday, 12:30.This is one of the most important indicators and should be treated as a market-mover. The indicator posted has posted strong job gains in Q1, and the trend is expected to continue in April, with an estimate of 20.0 thousand. The unemployment rate is expected to remain unchanged at 6.7%.
  5. Ivey PMI: Friday, 14:00. The indicator climbed to 61.1 in March, its highest level since January 2016. The upward trend is expected to continue, with the estimate for April standing at 62.3 points.

USD/CAD Technical Analysis

USD/CAD opened the week at 1.3483 and quickly dropped to a low of 1.3408. The pair then reversed directions and climbed to a high of 1.3697, as resistance held firm at 1.3757 (discussed last week[4]). USD/CAD closed the week at 1.3649.

Technical lines, from top to bottom

We start with resistance at 1.4019. This line has held since February 2016.

The round number of 1.39 is next.

1.3757 held firm as the pair posted strong gains last week.

USD/CAD starts the week just above 1.3648.

1.3551 has switched to a support role.

1.3457 was a high point in September 2015.

1.3351 is the next support level.

1.3212 is the final support level for now.

I am bullish on USD/CAD

Although Trump’s first 100 days have not impressed, the US economy remains stronger than that of Canada. The soft Canadian GDP reading last week means that the BoC is unlikely to entertain any thoughts of raising interest rates.

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EUR/USD: Fair Value & Next 2 Technical Targets – SocGen

EUR/USD redefined its range after the French elections, settling on higher ground. What’s next? Here is the view from SocGen:

Here is their view, courtesy of eFXnews:

Societe Generale FX Strategy Research outlines its EUR/USD outlook from a macro and valuation perspective and from a technical front.

On the macro front, SocGen argues that based on the outlook for German real yields and Treasury yields, fair value for the EUR/USD would be around 1.23.

Such a value, according to SocGen, may be too much to expect but still thinks that we’ll see the EUR/USD test the top end of its 1.03-1.17 range at some point in 3Q/4Q.

On the the technical front, SocGen notes that EUR/USD confirmed an inverse head and shoulders pattern earlier this week, and approached an intermittent target at 1.0940/85, the 61.8% retracement from last November’s highs.

“Being able to hold above 1.0670 and, more importantly, the daily channel lower bound at 1.0610 should be pivotal for the EUR/USD uptrend to persist,” SocGen adds.

Such a setup, according to SocGen, suggests that the pair looks headed towards 1.1130, and then towards the potential of the pattern at 1.13.

EUR/USD is trading circa 1.09 as of writing.

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Forex Weekly Outlook May 1-5

US Manufacturing data, Crude Oil Inventories, Employment figures from New Zealand, Canada as well as the important US NFP report, Rate decision in Australia, New Zealand, and the US, Speeches from Janet Yellen, Mario Draghi and Stephen Poloz. These are the highlights on forex calendar, Join us to explore these eventful week.

Last week poor US data resulted in a sluggish annual growth of 0.7%[1] during the first three months of the year. This was the weakest GDP reading in almost three years. Mild consumer spending was the main reason behind the lukewarm figure. President Trump has promised to end the slow-growth history pledging to create a 4% growth. Since coming to office, Trump’s aim is to get to 3% growth with tax reform and improved trade regulations, to boost growth in the US economy. Analysts claim the chances of getting to 4% growth are very slim. Furthermore, Durable goods orders increased less than expected rising 0.7% while core orders slipped 0.2%. Jobless claims posted a higher than expected reading of 257,000, rising 14,000 from the previous week. Will this trend continue?

Let’s start,

  1. US ISM Manufacturing PMI: Monday, 15:00. Manufacturing activity in the US weakened from a 2-½-year high in March amid mild declines in new orders and production, meanwhile the employment index expanded. The ISM index declined to 57.2 from 57.7 in February. The growth trend in manufacturing occurred mainly due to steady increases in the energy sector as crude oil prices boosted drilling activity. Production sub index declined to 57.6, new orders fell to 64.5 from 65.1 in February, while employment edged up to 58.9, the highest reading since June 2011. The manufacturing index is expected to register 56.6 in April.
  2. Australian rate decision: Tuesday, 5:30. The Reserve Bank of Australia kept rates on hold once again despite rising house prices. Rates remained at 1.50% in line with market forecast. Annual house prices soared in March to their highest level since May 2010 but according to the RBA, this alone does not justify a rate hike. Policymakers believe the cash rate will remained unchanged for the rest of this year.
  3. New Zealand employment data: Tuesday, 23:45. New Zealand’s unemployment rate increased more than expected in the fourth quarter of 2016 rising 0.3% to 5.2%. The higher unemployment was mainly due to an increase in the labor force participation rate, reaching 70.5% from the 70.2% forecasted. New Zealand added 19,000 jobs in the fourth quarter rising 0.8% from the previous quarter. Private-sector wages gained 0.4% on quarter, up 1.6% from the previous year. New Zealand’s agriculture-rich economy is gathering momentum with strong migration flows, solid commodity prices and record low interest rates. NZ job growth is expected to reach 0.8% and the unemployment rate is expected to decline to 5.1%.
  4. US ADP Non-Farm Employment Change: Wednesday, 13:15. According to the ADP release U.S. employment market added 263,000 workers in March, the highest figure since December 2014, suggesting further tightening of the labor market. The positive forecast supports the Fed’s intentions to raise rates at least twice by the end of this year. The ADP figures for March were in contrast with the more comprehensive non-farm payrolls release on Friday, which showed a disappointing 98,000 jobs gain for the month. The ADP reading is estimated to show a jobs gain of 178,000 during April.
  5. US ISM Non-Manufacturing PMI: Wednesday, 15:00. The U.S. service sector expanded less than forecasted in March falling to 55.2 from 57.6 in February. This was the slowest growth since October. The business activity index declined to 58.9 from 63.6 in the prior month, missing forecast of 61.5. The employment index fell to 51.6 from 55.2 a month before. New orders slipped to 58.9 from 61.2. The price index fell to 53.5 from 57.7. US service sector is expected to improve to 56.1 this time.
  6. US Crude Oil Inventories: Wednesday, 15:30. U.S. crude oil inventories declined sharply in the week to April 21 while stockpiles of gasoline and distillates soared last as refiners boosted production rates to the highest since November 2015. This was the third consecutive week of drawdowns in crude stocks preparing for the high-demand summer driving season. Demand for refined products remained weak for this time of the year, which may be a cause for concern in the coming weeks if demand fails to recover.
  7. US Federal Funds Rate: Wednesday, 19:00. The Federal Reserve hiked rates in March, for the second time in three months, increasing its benchmark interest rate to 1%. The increase was in line with market forecast. Investors expect the Fed will raise rates at least two more times this year. In the economic projections statement the Fed noted it expects three moves as the business investment strengthened mildly from the February meeting. GDP growth forecast for 2017 remains at 2.1% while 2018 edged up to 2.1%. Inflation is expected to tick to 1.9% from 1.8% in the prior meeting. However, despite the rate hike expectations Federal Reserve Chair Janet Yellen noted the Fed remains data-dependent and not interested in aggressive tightening. The Fed is not expected to change rates this time.
  8. US Unemployment Claims: Thursday, 13:30. The number of Americans filing new claims for unemployment aid increased more than expected in the week to April 22, reaching 257,000, following a reading of 243,000 in the previous week. Meanwhile, the four-week average of claims fell 500 to a two-month low of 242,250 indicating that labor market conditions continue to tighten. Furthermore, claims have now been below 300,000 for 112 straight weeks. The number of new jobless claims is expected to register 246,000 this week.
  9. Mario Draghi speaks: Thursday, 17:30. ECB President Mario Draghi will speak in Switzerland. Market volatility is expected.
  10. Stephen Poloz speaks: BOC Governor Stephen Poloz will speak in Mexico City where clues on future rate changes may be revealed.
  11. Canadian employment data: Friday, 13:30.  Canadian employment market expanded by 19,400 jobs in March and the unemployment rate edged up to 6.7% as more people entered the workforce. The upbeat report suggested Canada’s economic growth gathered momentum. The hefty jobs gain was nearly four times more the expected level of 5,700, continuing a three-month of increase. The positive data will make it difficult for the Bank of Canada to keep rates low in the coming months. However BOC Governor Stephen Polo zos still worried about the downside risks in the Canadian economy. Canadian employment market is expected to show a job creation of 20,000 with 6.7% unemployment rate.
  12. US Non-Farm Payrolls and Unemployment rate: Friday, 13:30. Nonfarm payrolls disappointed in March with a meager job creation of 98,000, following an upbeat ADP report of 263,000 jobs gain. However, the unemployment rate fell to a 10-year low of 4.5%. Analysts expected an addition of 180,000 positions for the month. The unexpected low figure could be explained by weather issues decreasing activity. Wage growth remained strong with an annual rise of 2.7% in average hourly earnings. Policy makers are closely monitoring the monthly payrolls report to see whether another rate increase in June is in order. The NFP for April is expected to register 194,000 new jobs in April.
  13. Janet Yellen speaks: Friday 18:30. Federal Reserve Chair Janet Yellen will speak in Providence about Women’s Participation in the Economy. Market volatility could be expected.

That’s it for the major events this week. Stay tuned for coverage on specific currencies

*All times are GMT.

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EUR/NZD: Bullish Signal Confirmed On Weekly & Monthly Close – NAB

NAB FX Technical Strategy Research notes that EUR/NZD completed a most bullish set up at the end of March and confirmed this setup into the end of April.

On a weekly basis, NAB notes that EUR/NZD also confirmed a bullish setup with the weekly close above the 50-week MA at 1.5345.

“This was accompanied by significant bullish triggers in MT/LT momentum indicators. A multi-month uptrend is now a high probability outcome, targeting 1.63+ with potential to achieve 1.70+,” NAB projects.

EUR/NZD is trading circa 1.5860 as of writing. 

Source: NAB Research

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What's Next For ECB, FED, BoJ? Impact On USD, EUR, JPY – BofAML

Bank of America Merrill Lynch FX Strategy Research notes that investors’ focus shifts back to central banks after the French elections.

On the ECB, BofAML notes that the central bank did not rock the boat this week, and expects them to announce QE tapering this fall, as they do not seem willing to increase the issue limit or relax the capital key.

On the Fed, BofAML’s US economists do not expect the Fed to hike in June, but it is a very close call and they still expect two more hikes, followed by the beginning of unwinding the balance sheet this year, and three hikes next year.

On the BoJ, BofAML argues that the BoJ can comfortably remain on hold, as they did this week, and let the Fed and the ECB do all the work, loosening relative monetary conditions for Japan.

Although this view of the world suggests a mixed outlook for EUR/USD, it is very bullish for both the EUR and the USD against the JPY,” BofAML concludes. 

Source: Bank of America Merrill Lynch Rates and Currencies Research

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What's Next For ECB, FED, BoJ? Impact On USD, EUR, JPY – BofAML

Bank of America Merrill Lynch FX Strategy Research notes that investors’ focus shifts back to central banks after the French elections.

On the ECB, BofAML notes that the central bank did not rock the boat this week, and expects them to announce QE tapering this fall, as they do not seem willing to increase the issue limit or relax the capital key.

On the Fed, BofAML’s US economists do not expect the Fed to hike in June, but it is a very close call and they still expect two more hikes, followed by the beginning of unwinding the balance sheet this year, and three hikes next year.

On the BoJ, BofAML argues that the BoJ can comfortably remain on hold, as they did this week, and let the Fed and the ECB do all the work, loosening relative monetary conditions for Japan.

Although this view of the world suggests a mixed outlook for EUR/USD, it is very bullish for both the EUR and the USD against the JPY,” BofAML concludes. 

Source: Bank of America Merrill Lynch Rates and Currencies Research

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EUR/USD: Fair Value & Next 2 Technical Targets – SocGen

Societe Generale FX Strategy Research outlines its EUR/USD outlook from a macro and valuation perspective and from a technical front.

On the macro front, SocGen argues that based on the outlook for German real yields and Treasury yields, fair value for the EUR/USD would be around 1.23.

Such a value, according to SocGen, may be too much to expect but still thinks that we’ll see the EUR/USD test the top end of its 1.03-1.17 range at some point in 3Q/4Q.

On the the technical front, SocGen notes that EUR/USD confirmed an inverse head and shoulders pattern earlier this week, and approached an intermittent target at 1.0940/85, the 61.8% retracement from last November’s highs.

“Being able to hold above 1.0670 and, more importantly, the daily channel lower bound at 1.0610 should be pivotal for the EUR/USD uptrend to persist,” SocGen adds.

Such a setup, according to SocGen, suggests that the pair looks headed towards 1.1130, and then towards the potential of the pattern at 1.13.

EUR/USD is trading circa 1.09 as of writing. 

Source: Societe Generale Cross Asset Research

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CAD: Pulling Forward BoC Hike Call To April '18; USD/CAD Hard Floor At 1.30 – TD

TD Research has pulled forward our call for when the Bank of Canada will hike rates on the back of the recent strength and an improved outlook for the Canadian economy.

We now expect the Bank to hike rates by 0.25% in April 2018, six months earlier than previously anticipated, followed by an additional 0.25% hike in October 2018,” TD projects.

Factoring that in CAD, TD argues that a more gentle tightening cycle from the BoC this time around would likely leave CAD a low-yielding currency that is likely to create a hard floor at 1.30 this year.

USD/CAD is trading circa 1.3676 as of writing. 

Source: TD Securities Research

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